Address productivity, embrace digital solution, PwC urges banks

The impact of digital evolution on traditional businesses would require a change of mind-set and adoption of smart solutions, especially by banks, to stay above threats on their operations, a report by PricewaterhouseCoopers (PwC) has warned.

PwC, therefore, urged banks to look beyond the realm of cost-reduction and restructuring measures for profitability and long-term survival, warning that such strategies come with inherent limitations.

The a global financial advisory company noted that in the face of concern over the disruption of Artificial Intelligence (AI) in the industry, managers should clearly spell out tasks that could be performed by AI and those human capital is needed to execute.

The Financial Services Leader for PwC Nigeria, Sam Abu, says: “The cost cutting agenda adopted by many institutions since the financial crisis has, in essence, de-globalised the industry to make it more local or national, shrunk global footprints, divested businesses and shed clients.

“However, this process has run its course. If profitability is to get anywhere near the highs of 15 years ago, what is needed now is a fundamental focus on building a sustainable productive business model that can compete with both incumbent institutions and digital-only competitors,” Abu stated.

PwC has identified six areas where financial institutions can focus their productivity efforts to boost sustainable profitability, including better understanding of the workforce, rethinking change functions and embracing the platform economy.

The report added: “As people live and work longer, and unemployment rates remain low, digital training and retraining of existing workforces is particularly crucial. Despite its importance, research shows that current efforts are not achieving the desired results.”

“Of the financial-services leaders polled in PwC’s 2018 CEO Survey, 75 per cent reported they were concerned about shortages of digital skills within the industry.

“To keep up with digital-only competitors and rapidly deliver a seamless and instant customer experience, 77 per cent of financial institutions are turning to agile somewhere in their organisations…

“Over 50 per cent of CEOs believe AI will have a bigger impact than the Internet. Getting the balance right between tasks performed by AI and tasks performed by people will be key to future success for financial institutions.

“With banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs. Even in the asset management industry, where return on equity is higher than the financial services industry as a whole, there is downward pressure on margins and profitability.

“Cost cutting will only deliver so much. If financial institutions are to improve profitability in the long-term, they need to fundamentally improve the productivity of the enterprise.”